Dallas’ economy continues to outperform the rest of the country, a phenomenon that has carried the city’s commercial real estate market through one of the most turbulent periods in modern history.
High interest rates remain the prevailing wind holding back transactions in North Texas and beyond. But investors with the wherewithal to close deals are still flocking to Dallas, where the momentum continues, against all odds.
Bisno/Hussein Masoumi
Richard Barkham, Global Chief Economist at CBRE, will deliver the keynote address for the event.
“There are very few places around the world where you can go and tell this story,” Richard Barkham, global chief economist at CBRE, said Tuesday at a news conference. Bisno It happened at one Dallas center. “It’s a great success.”
Business-friendly tax regulations, lower housing costs compared to other parts of the country, and abundance of available land are competitive advantages that companies and developers seek when they come to North Texas.
This formula has been effective in driving growth, Barkham said. The Metroplex was the No. 2 area in employment growth last year, with more than 154,000 new jobs created, second only to New York City. The region also leads the country in population growth, adding 152,598 new residents between 2022 and 2023.
The city’s commercial real estate market has much higher vacancy rates than other metro areas, especially in its offices. Barkham said this was more due to strong growth coupled with falling demand than evidence of weakness.
Bisnow/Olivia Lockmeyer
Zach Sams of Kensington Vanguard National Title, Christopher Morris of Edge Capital Markets, Lee McCormick of Lone Star PACE, Bob Mohr of Mohr Capital, Ryan Chesmark of Meritax Advisors, Branko Kuzmanovic of Empira Group, and Steve Galbraith of Garfield Public/Private.
“The level of Dallas deliveries, in general, is well above the national average,” he said. “We’ve had this big uptick in new construction in the Dallas area, which is good in the long run.”
On the office side, some of the glut of vacancy downtown is being addressed by a large number of conversions to multifamily homes. Pacific Elm Properties is at the forefront of this work, converting millions of square feet of defunct office space across the Santander and Bryan Towers into residences.
“Downtown is really crowded right now,” said Regan Busby, vice president of Pacific Elm Leasing. “Dallas leads the nation in conversions of older vacant buildings into downtown real estate.”
However, there are some vacant office buildings that cannot be converted, putting them at greater risk of distress.
A few of these properties have already entered the foreclosure process. This trend is likely to gain momentum over the next few years, especially as owners face fewer options to recapitalize their loans, said Robbie Batty, a senior vice president at Cushman & Wakefield.
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Greg Gordon of Gordon Highlander, Robbie Batty of Cushman & Wakefield, and Emily Hoffman of Collier’s Shop Cos.’ Brittney Austin, Regan Busby of Pacific Elm Properties, and Doug Banerjee of Greysteel
“Developers and owners who can switch to some type of serviced building and have a competitive price point will do just fine and eventually fill it,” he said. “But those who can’t do that will continue to sit empty, and we’ll see a massive wave of foreclosures and conversions.”
A lack of available capital has been a tailwind for some companies, including Lone Star PACE, which runs the state’s evaluated clean energy program. The PACE program provides low-cost, long-term financing to improve energy and water efficiency through voluntary assessment of commercial properties.
Demand for PACE has skyrocketed as owners look for alternative ways to obtain debt, resulting in Lone Star PACE’s lending volume doubling each of the past three years, President Lee McCormick said.
“A few years ago, we were a niche market,” he said. “But as major lenders pulled back on their lending limits on projects and capital began to see those gaps widen, more developers turned to clean energy-assessed financing for real estate to fill those gaps.”
Bisnow/Olivia Lockmeyer
Steven Atchurch of Gensler, Dallas Cothrum of Masterplan, Artemio de la Vega of De La Vega Developments, Donald Brown of Hall Group, Katina Homes, Harrison Polsky of Douglas Elliman Real Estate, and Billy Prewitt of Pacific Elm Properties.
Optimism about the Fed’s signal on future interest rate cuts is getting some deals moving again, but much of that activity has been shifted toward the suburbs amid bureaucratic inefficiency in Dallas.
The city’s permitting system has been a deterrent, and earlier this week, the Dallas City Council approved a series of development fee increases that could further deter investment.
“[The city is] “More useful on larger projects, but if you have a small or medium-sized project, you can get lost in the chaos of all the different silos,” said Masterplan President Dallas Cothrum.
Despite some growing difficulties, developers remain optimistic about the market’s long-term prospects. The region will continue to boast advantages that drive growth, and a general trend toward unbridled ambition will keep the city a step above the rest.
“We are in the best area in the country because the people here are hardworking,” said Artemio De La Vega, CEO of De La Vega Development. “We have a can-do attitude here.”
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